US SEC sues ConsenSys over MetaMask and Ethereum staking services: Lido, Rocket Pool also affected

The U.S. Securities and Exchange Commission (SEC) has filed a lawsuit against Consensys, the Ethereum software provider, alleging that its MetaMask wallet service acted as an unregistered broker, facilitating the offer and sale of securities. This legal action also involves the Ethereum staking services Lido (LDO) and Rocket Pool (RPL) utilized by MetaMask.

Is MetaMask's Wallet Also Involved in Securities?

MetaMask is widely recognized as the most commonly used wallet for Ethereum and other blockchains. In addition to storing cryptocurrencies, MetaMask also allows users to directly buy and sell digital assets through its "Swap" service. The lawsuit filed by the SEC in the Eastern District Federal Court in New York alleges that this functionality is at the core of the alleged violation.

Wallet Trading Functionality Involves Securities, Profits for Consensys

According to the SEC, Consensys facilitated over 36 million cryptocurrency transactions through MetaMask in the past four years, with "at least 5 million" involving cryptocurrency securities. The "Swap" service of this wallet generates revenue for Consensys, which the SEC believes constitutes unregistered brokerage activities.

SEC's Stance on Cryptocurrency Securities

The SEC's lawsuit lists several cryptocurrencies, including Polygon (MATIC), Mana (MANA), Chiliz (CHZ), The Sandbox (SAND), and Luna (LUNA), as unregistered securities. This determination has been disputed by several issuing entities in previous SEC cases. The lawsuit suggests that other digital assets may also be classified as securities.

SEC Initiates Review of Staking Functionality: Staked Tokens Are Investment Contracts

MetaMask's staking functionality is supported by Lido and Rocket Pool, the largest staking service protocols currently, allowing users to deposit assets to secure the Ethereum blockchain and earn rewards. Users receive liquid staked tokens, such as stETH and rETH, which can be freely traded. The SEC considers these tokens to be investment contracts and therefore unregistered securities.

Consensys Responds: Not Surprised

A representative from Consensys expressed disappointment but not surprise at the SEC's actions, criticizing the agency for its regulatory overreach and anti-cryptocurrency agenda. The representative emphasized that MetaMask should not be classified as a securities broker.

Coinbase Sues SEC and FDIC: Refuses to Provide Documents as Required by Law, Attempting to Exclude the Cryptocurrency Industry

In April, Consensys sued the SEC seeking judicial relief to oppose potential claims against MetaMask's broker status and its staking services. The lawsuit also aims to declare Ethereum's ETH as a non-security and to halt the SEC's investigation into Consensys.

SEC Drops Investigation into ETH, Still Plans to Sue MetaMask for Staking and Trading Functionality